Thursday, July 28, 2016

A new essay "Macro-Finance," based on a talk I gave at the University of Melbourne this Spring. I survey many current frameworks including habits, long run risks, idiosyncratic risks, heterogenous preferences, rare disasters, probability mistakes, and debt or institutional finance. I show how all these approaches produce quite similar results and mechanisms: the market's ability to bear risk varies over time, with business cycles. I speculate with some simple models that time-varying risk premiums can produce a theory of risk-averse recessions, produced by varying risk aversion and precautionary saving, rather than Keynesian flow constraints or new-Keynesian intertemporal substitution.

Wednesday, July 27, 2016

This is mostly of interest if you want to know how to solve continuous time new-Keneysian (sticky price) models. Chris' model is very interesting, combining fiscal theory, an interest rate rule, habits, long term debt, and it produces a temporary decline in inflation after a rise in nominal interest rates.

Some of the inspiration for this project came from the remarkable 1980 memo (here) to President-elect Ronald Reagan from his Coordinating Committee on Economic Policy.

Like that memo, this is a book about governance, not politics. It's not partisan -- copies are being sent to both campaigns. It's not about choosing or spinning policies to attract voters or win elections.

The book is about long-term policies and policy frameworks -- how policy is made, return to rule of law, is as important as what the policy is -- that can fix America's problems. It focuses on what we think are the important issues as well as policies to address those issues -- it does not address every passion of the latest two-week news cycle.

The book comprises the answers we would give to an incoming Administration of any party, or incoming Congress, if they asked us for a policy package that is best for the long-term welfare of the country.

Saturday, July 9, 2016

Above, a lovely graph from The Conversation. A common story says that opposition to immigration comes from people in high-immigrant communities, who suffer externalities from the presence of many immigrants. It is not true.

Wednesday, July 6, 2016

a growing body of economic literature suggests that anti-growth sentiment... is a major factor in creating a stagnant and less equal American economy.

...Unlike past decades, when people of different socioeconomic backgrounds tended to move to similar areas, today, less-skilled workers often go where jobs are scarcer but housing is cheap, instead of heading to places with the most promising job opportunities according to research by Daniel Shoag, a professor of public policy at Harvard, and Peter Ganong, also of Harvard.

One reason they’re not migrating to places with better job prospects is that rich cities like San Francisco and Seattle have gotten so expensive that working-class people cannot afford to move there. Even if they could, there would not be much point, since whatever they gained in pay would be swallowed up by rent.

Stop and rejoice. This is, after all, the New York Times, not the Cato Review. One might expect high housing prices to get blamed on developers, greed, or something, and the solution to be government-constructed housing, "affordable" housing mandates, rent controls, low-income housing subsidies (which protect incumbent low-income people, not those who want to move in to get better jobs) and even more restrictions.

No. The Times, the Obama Administration, California Governor Gerry Brown, have figured out that zoning laws are to blame, and they're making social stratification and inequality worse.

About Me and This Blog

This is a blog of news, views, and commentary, from a humorous free-market point of view. After one too many rants at the dinner table, my kids called me "the grumpy economist," and hence this blog and its title.
In real life I'm a Senior Fellow of the Hoover Institution at Stanford. I was formerly a professor at the University of Chicago Booth School of Business. I'm also an adjunct scholar of the Cato Institute. I'm not really grumpy by the way!